This is an issue that a mortgage servicer’s counsel needs to be concerned about, but dedicated servicers will want to understand the concepts, highlighted by a new case. [Aames Funding v. Houston, 57 A.D. 3d 808, 872 N.Y.S. 2d 134 (2d Dept. 2008)]
A notice of pendency (commonly a “lis pendens”) is a document filed by a plaintiff (like a foreclosing mortgage holder) in an action which affects, among other things, title to real property. A mortgage foreclosure action does indeed affect title (the property is to be sold at a foreclosure sale) and so this paper is filed in a mortgage foreclosure action. In fact, it is required in the foreclosure case – a judgment of foreclosure and sale cannot be granted unless the lis pendens has been on file for at least 20 days. Obviously, then, in a foreclosure, this is more than some technical nicety; it is a mandate. (This does not mean, though, that there is an infirmity in a foreclosure action if a lis pendens is not filed at the inception of an action or, if filed is defective. The requirement is that the lis pendens be on file twenty days before judgment of foreclosure and sale issues.)
What is truly critical about the lis pendens, though, is that once filed, it binds anyone who later acquires an interest in the property to the foreclosure action as if they had been named and served – even though at the inception of the action that person was unknown. This aspect is of overarching importance in the foreclosure arena. Once the foreclosure is begun, naming as defendants everyone with a junior interest to cut them off, it is theoretically possible that the borrower could get another mortgage, or suffer a judgment, or sell the property to his cousin. How does a foreclosing plaintiff cut off the interests of those later parties who at the beginning of the case had nothing to do with the mortgaged property?
The very simple answer – fortunately- is that the lis pendens addresses this. Once it is filed, the foreclosing plaintiff need not be concerned about any new subsequent interests. They are (as noted) bound to the action as if named and served.
Ah, but the lis pendens has a life of three years and cannot be renewed unless good cause is shown (all standard principles mentioned by the new case). So what if just before the lis pendens expires the borrower files a bankruptcy petition, thereby staying the action?
The new case confirms that imposition of the bankruptcy stay is the good cause which allows a court to grant a new three year extension of the lis pendens. In this case, the wily borrowers tried to upset the foreclosure by moving to discharge the lis pendens but lost.
Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2017), is a partner with Berkman, Henoch, Peterson, Peddy & Fenchel, P.C. in Garden City, New York. He is also a member of the USFN, The American College of Real Estate Lawyers, The American College of Mortgage Attorneys, an adviser to the New York Times on foreclosure issues and writes a regular servicing column for the New York Law Journal. He is AV rated by Martindale-Hubbell, his biography appears in Who’s Who In American Law and he has been for years listed in Best Lawyers In America and New York Super Lawyers.